Investors have a lot of concerns right now – the potential for falling interest rates, the U.S. elections and the emergence of artificial intelligence. How should they play these events?
Federal Reserve Bank Chair Jerome Powell speaks during a House Financial Services Committee hearing on the Federal Reserve’s Semi-Annual Monetary Policy Report at the U.S. Capitol on Wednesday, July 10, 2024, in Washington, D.C.
— What is your view of the market’s enthusiasm around tech stocks and AI, and how should investors with long-term time horizons approach it?The Federal Reserve has made it clear that it’s poised to move interest rates lower as soon as it sees inflation more consistently moving toward its 2 percent target. With inflation having moved lower, most market watchers think it’s only a matter of time until the Fed cuts rates.
“When the Fed starts cutting rates, equities tend to do well, particularly small cap stocks, as they have more floating rate debt than large cap companies,” says Dec Mullarkey, managing director, SLC Management. “As the cost of debt drops, earnings improve as long as economic growth holds up.”“One concern that investors could have is that even though the Fed begins to cut rates, do they do it too slowly,” says Brad McMillan, chief investment officer, Commonwealth Financial Network.
Still, other analysts are keeping their eyes on government spending, with the 2017 Tax Cuts and Jobs Act due to expire at the end of 2025. The act drastically rolled back taxes. Continued deficit spending at current levels may finally prove unpalatable to investors.
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